No Trade War is coming

Another 700+ crash today with Dow. Then the following news:

• A $60 billion money manager is considering selling all his U.S. assets because of the tariff fight
• U.S. investors retreat from stock funds for third week due to fear of a potential full-blown trade war between the United States and China

It is pretty scary these days in the stock market, isn’t? But here comes with my bold prediction: there will be NO TRADE WAR COMING!

 I may be wrong but I’m confident that I’m right.

We have seen a rollercoasting market in the past few weeks and I’m sure a lot blame has been credited to the potential trade war initiated by Trump. Sounds a pretty stupid move by the Trump Administration as everyone knows there is no winner in a trade war and all the sides will suffer brutally at the end. Does Trump have no idea about it? Don’t judge too fast, folks!

I must say Trump, who is not a politician at all by the traditional criteria, is indeed a brilliant businessman and US indeed needs such a businessman at the helm if it wants to get out of the super deep financial hole. I’m not here to argue with you politically but I’m sharing with you why I think Trump is doing great for the US future economically.  

Regardless which side you are sitting on, there is one thing I think all of us can agree upon: that is the US has been in super trade deficits for decades virtually with all the countries, which is not great for the US economy. I guess you don’t need to be an economics PhD to figure this out. Any president, even an economic idiot as we have seen from time to time, should be able to understand this simple fact. So why all the previous presidents would just tolerate this and even got more with new trading agreements in such a fashion? It is all to do with the US political mindset. US has always considered arrogantly that it is the only superpower in the world that can manager others’ business as its own politically and ideologically. Due to this fundamental way of thinking, US is willing to sacrifice its economic interests for the sake of geopolitical interests. For many years in the past, it was fine as US had sufficiently strong economic muscles to deal with the trade deficits. But not now anymore. Economically US is becoming weaker and weaker and there is virtually no way for it to climb up the big financial hole it had dug out for itself in the past decades. Believe or not, US is heading down towards a gigantic financial crisis at the scale no one can imagine at the moment, if the current situation is just let continue. Anyone with slightest economic sense should be able to understand this, not to mention Trump, a savvy businessman! Trump is determined to change this as he does not care much about the geopolitical and ideological interests but more for the economic interests as his top priority! So how can he effectively change the decades’ long disadvantage in trading with others?

Now try to put yourself into the shoes of all the other countries which have already enjoyed long term trade surplus for decades. Would you easily back off if the US just makes a nice request to ask you to open your market more for the US products? No one would take it seriously, right? That’s why Trump is doing what he is good at by creating a big scary issue first and let everyone know they must take it seriously as a trade war is coming if not satisfying the US demands. As expected, the whole world is scared and panicking when seeing US is raising their tariffs across the board. Of course it would be stupid to think that any country would simply give in to the US requests without retaliating first. But believe me, all is just a show, a political show to save their face. You will see a lot of strong verbal talking how they will fight back at any cost. Here is my prediction: all the major US trading partners will have to come and sit down with US to renegotiate the trading terms since none of them will have the gut to engage in a real trade war with the US. The loss for them would simply be too big to swallow, although US will also suffer dearly for sure. Guess what will be the outcome for the US for any negotiation? It will only be better for the US and no way to be worse from what is already the worst in almost all the terms! Here is the inside information and top secret I’m only sharing with you: I got a call from the President informing me what he is going to do on this issue and he has reassured me no trading war will ever happen!☺☺☺

If you read my blogs carefully, you should recognize that this has been my consistent view on the prospect of a potential trade war since very beginning. I have never worried about it. The market knee jerk reactions are just noises and will only create great trading opportunities if you can seize it during the market panic. The passing week was a great week for me as the huge panic selloff on Wed following the Chinese retaliation tariffs allowed me to close my short positions for great profits and I took the opportunity to add long positions. It seems as the day passing on, the market finally got the point I was telling all along and it mounted an incredibly strong reversal on the day with Dow jumping 700+ higher from its intraday low. This was quite bullish at a day with seemingly enormous bad news but I think the market has finally got it right. Today’s was another day with big selloff overnight due to even more tariffs proposed by Trump but at the end, much less panic was seen from the market. See the trend? Less panic reactions to the seemingly intensifying potential trading wars!

So the big question is where the market is going from here? Someone asked a while ago if I was a permanent bear as I was constantly talking about low testing in the past few weeks. I’m not and actually I have been saying consistently for quite some time that I’m still thinking some good days can continue for some time under the Trump’s new leadership. My bearish view in the past two months was more related to how the correction would evolve. But now I actually think the market may have reached its bottom for this two months long correction and moving forward, it may start its uptrend as the major direction for the rest of the year. You see, the market has not only retested its daily low at 2581 for S&P, but also very close to its intraday low of 2530ish. I think enough is enough for this correction and it’s time for the market to recover and move up. The scary potential trade wars should have pushed the market way down, maybe below the Feb low of 2530. But it didn’t and the market has help up well above its Feb closing low above 2581. This tells me the relative strength of the market, an important sign of the bottoming. The whole world is quite bearish with depressing sentiment. The talking heads are universally looking for more downside, a good contrarian indicator.  Of course I may be too early to call this as its daily momentum has not yet turned a clear positive sign, definitely not the weekly chart. So the risk is still there that it may go down further even passing through the 2530 support. But I think it is less likely although we will likely still see a very choppy and volatile market and periods of panic selling like today. Even if the ultimate bottom is not in yet, at least we should be very close to it. Let’s see how the market works its way out.

The bottom line is that we may have seen the worst time during this correction and we may start to think about the truly recovery phase in the weeks ahead. However, it is important that there is no such thing as a straight line up. The volatility will still be high and we may still see scary panic selloffs during the course. Panic selling at lows or chasing highs are both losing games in this market. Be disciplined and be patient!